DFL leaders in the Minnesota House unveiled their tax plan this week, and were eager to point out that a proposed income tax hike wouldn’t have a big effect on small businesses.

“It’s important to note it would only affect the income that business owners take in salary over $400,000 not in other business expenses,” said House Majority Leader Paul Thissen during a press conference April 15, 2013. “The talking point that Democrats are going to tax mom and pop small businesses is simply not true.”

Very few small businesses would be affected by the proposed tax rate change, though the tax bill Thissen is talking about includes other new taxes, fees and fee increases that would affect both small and large businesses.

The Evidence

Thissen is talking about the DFL’s proposal to implement a new top tax rate of 8.49 percent and an additional but temporary 4 percent surcharge on Minnesota’s wealthiest taxpayers. The surcharge would raise $1.2 billion to pay schools money the state borrowed to balance last biennium’s budget.

The plan would affect only 3.3 percent of Minnesota’s filers – or about 12,000 returns – who pay taxes on “pass-through income,” or income that comes from S corporation, partnerships and sole proprietorships, according to the Minnesota House’s research department. These filers generally have few employees, though some large companies pay taxes this way as well.

In a recent Star Tribune editorial, Thissen also pointed out that the surcharge would only apply after small business owners had paid employees and made business investments.

So, when it comes to the new income tax rates, Thissen is basically correct: the higher rate would affect very few businesses that pay income taxes.

The DFL tax bill also includes other new taxes, fees and fee increases that would affect many business sectors.

For instance, the legislation would impose a $5 fee on auto and homeowners insurance policies that insurance industry lobbyist Mark Kulda says would pose a financial burden on smaller insurance companies. That provision would raise $23 million for fire fighter and police pensions.

The legislation also includes new taxes on liquor sales, which bars and liquor stores worry they won’t be able to afford.

Also on the table are fees on prepaid cell phones, a sports memorabilia tax and higher fees for attorneys to fund the court system.

The Verdict

Thissen isn’t too far off in saying that the income tax hike wouldn’t apply to “mom and pop small businesses,” though it’s important to note that the House tax bill includes other fees and taxes that could affect businesses.

About the blogger

Catharine Richert covers politics for MPR News, and writes PoliGraph, a fact-checking feature that gets behind the spin in Minnesota politics. She has also contributed to MPR’s coverage of the federal health care overhaul. Catharine joined the MPR newsroom in 2011 after finishing a master’s degree at the U of M’s Humphrey School of Public Affairs. Previously, Catharine worked for PolitiFact.com and Congressional Quarterly. She lives in Rochester with her husband and son.

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Curious why Bachmann’s tagged in this article. Did she make a contradictory claim?

Mac Hall

Echoing BBell85’s comment … I was wondering the same thing concerning the Bachmann reference.

Second, I am confused by the $5 fee that “insurance industry lobbyist Mark Kulda says would pose a financial burden on smaller insurance companies” …. if every insurance company, large and small, pays the same $5 fee, what difference does it make ?

Previously, it was reported that Mr. Kulda offered a slightly different rationale :

Kulda said the tax is hidden from policyholders, but that surcharges, which are noted separately on statements, are unpopular. Unlike other surcharges — such as one that funds auto theft prevention efforts — this one doesn’t have a “direct correlation to a service provided,” Kulda said.

“It’s really not raising that much money to solve a really, really large problem,” Kulda added. “I think the concern is that if it goes on, would there be a time when they raise that amount?”

~ ~ ~

Thus the implication is that this “surcharge” will appear on the bill — so big or small insurance company, will just be passing along the charge to the consumer …

Admittedly, I do not know if the fee is enough to make someone decide not to insure their home for fire protection but I am assuming that it will not be a factor as many homes have a mortgage that requires homeowners insurance.

Would he feel better if the dollars were a percentage of the policy where low valued homes would pay less than mega-mansions and consumers could decide how much to insure their properties to avoid the escalating scale.

Would he feel better if the legislature did not address this, and the taxpayers ended up getting stuck when the pension plans default and there are a lot of angry retirees ?

Would he feel better if the current employees increased their contributions — State Patrol personnel would see an increase of 11.5% … meaning a reduction in their take-home pay — which could result in problems hiring personnel in the future.

MeThinks Mr. Kulda is more concerned that once the “surcharge” is established that it will never be removed as the pension funds become solvent … and that the “$5” will increase. I applaud the legislature for addressing this problem. The proposed solution is logical and affordable.

david carl

“In a recent Star Tribune editorial, Thissen also pointed out that the surcharge would only apply after small business owners had paid employees and made business investments.”

What geniuses we have for legislators!

Of course taxes are reduced by costs of doing business, which reduce profits.

But the profits will be taxed higher, which will make MN a less desirable place to do business.